Maintaining Ethical Supply Chains

Maintaining an Ethical Supply Chain

BHGE’s supply chain is large and diverse as we source materials from more than 180 countries.

We spend more than $7 billion annually in raw materials and components that are incorporated into the products and services that we sell (direct materials). The largest categories of direct material purchases are castings, forgings, electronics and machined parts.

We also buy products and services to support our business operations, which are used to develop or create, but are not incorporated into, our products or services. These indirect purchases amount to nearly $3.5 billion annually and range from logistical support, tools and supplies to IT, telecom and professional services.

Suppliers are therefore critical partners in our value chain and maintaining an ethical supply chain is essential. Our Supplier Integrity Guide governs all aspects of our relationships with suppliers, contractors, consortium partners and consultants, and includes among other things specific requirements for fair employment practices; high standards in health, safety and environment; and respect for human rights of employees throughout business operations. Our suppliers are required to hold their own suppliers to equivalent standards.

Qualifying our Suppliers

In 2017, we started the process of fully integrating new and existing legacy Baker Hughes Inc. suppliers into the BHGE Supplier Reputational Guidelines (SRG) program, which is part of our common supplier onboarding process. This work continued throughout 2018, and we expect all relevant legacy suppliers to be fully integrated by the end of 2019. As part of the SRG program onboarding process, 100% of our suppliers are assessed for social risks.

Assessment: We take a risk-mitigation based approach to our supply chain monitoring program to identify suppliers that are required to be further assessed based on country risks, the supplier’s past performance and other factors. We look to continuously improve our risk profiling by further identifying additional risk factors, such as process risks, to include in our reviews.

Additionally, pre-engagements and on-site periodic assessments follow an Eyes Always Open policy for our teams to be alert to potential violations during any supplier visit.

Verification: We take a risk-mitigation based approach to our supply chain monitoring program to identify suppliers that are required to be further assessed. We look to continuously improve our risk profiling by further identifying additional risk factors, such as process risks, to include in our reviews.

Pre-engagements and on-site periodic assessments follow an Eyes Always Open policy for our teams to be alert to potential violations.

Audits: Suppliers identified as high risk are subject to audit by our trained auditors. These auditors carry out on-site audits on a one to three-year basis, using a global questionnaire and risk-weighting metrics. Spot checks are also carried out.

Requirements: To maintain ethical supply chains, our Supplier Integrity Guide is very specific about the prohibitions that are indicators of human trafficking and specifically prohibits activities associated with human trafficking, such as withholding passports, charging recruitment fees and misleading recruitment. Our Supplier Integrity Guide also imposes certain affirmative obligations on suppliers such as reimbursement of return transportation costs and providing workers with written contracts in a language they understand. The guide encourages open and direct reporting.

Accountability: All assessment findings from on-site inspections are recorded in our automated assessment tracking tool, which monitors each assessment finding until it is closed only once a supplier provides evidence that all noted findings have been corrected.

Our target is to close 90% of audit findings within 90 days. No purchase order will be issued to a new supplier, or purchase orders for existing suppliers that are suspended if findings remain open beyond this timeframe. Business relationships can be suspended immediately in the case of serious labor-related findings, such as evidence of child labor or forced labor.

Training: We have 163 trained SRG auditors as of April 2019 with an additional 555 employees undertaking SRG awareness training and 493 undertaking Eyes Wide Open training.

Each one of our trained employees is empowered to raise concerns they may have on supplier expectations, human rights issues and on-site due diligence requirements.

In 2018:

We conducted589
SRG audits with a total of3,753
findings reported.

About65%
of total assessments were reassessments.

91%
of findings were closed in less than 90 days and60
suppliers were rejected as a result of the SRG audit.

Since 2005, the combined BHGE entity has conducted more than 26,500 supplier assessments across 100 countries. We drive better outcomes through our collaboration and partnership with suppliers and other stakeholders. Working together with suppliers, customers, governments, industry partners, and academic and non-governmental organizations, we can achieve holistic progress in human rights more than any of one sector can accomplish alone.